This week the NJ SREC market experienced sustained buying in both the OTC New Jersey SREC markets as well as in the NJ EDC Spot auction. Tuesday and Wednesday spot markets were bid higher as well as noticeable buying in forward markets for the NJ17, NJ18, and NJ19 vintages. In Thursday’s EDC auction, the final price ($243.30) settled a little more than three dollars above the session’s offer price.
With all this focus on New Jersey SREC markets, we believe this is an opportune time to share our updated capacity models and provide additional information on what drove price action this week.
Our New Jersey SREC Update presentation can be found here.
A consistent trend observed in the New Jersey SREC market is the impact of the annual BGS auction, held in February of each year. As the New Jersey Electric Distribution Companies use the auction to procure large amounts of power supply, a corresponding number of SRECs must also be procured in the market in order to satisfy the new compliance requirements. As the market has come to understand this relationship, it is possible SREC buyers are entering the market earlier and earlier in an attempt to secure supply ahead of the BGS-induced rush. It could be inferred therefore that participants may now be using the liquidity supplied by other market events (in this case, Thursday’s EDC spot auction) as an opportunity to position even further ahead of any future price appreciation.
Regarding the buying activity in farther dated NJ SREC energy years, we revisited our capacity model which tracks state supply and demand fundamentals. Slides 6 and 7 of the NJ SREC Update presentation start with currently available 2015 market data, then examine three different build scenarios, based off of current LTM build rates, and observe the impact each has on the future balance of supply through 2020. Although the market is predicted to be fundamentally oversupplied, to some degree, across some of the build scenarios, even the greater per month build rates result in oversupply by ~27.6% in RY2019. While not insignificant, a 27.6% oversupply on its own does not guarantee the type of consistent selling pressure that would lead to a sustained selloff. If that 27.6% of the market decided to wait and hold off selling SRECs, or if the market experienced a build rate more in line with the current trend (~16.0 MW/month), the market could find support from a more balanced supply and demand dynamic.
To be clear, this is informational in purpose to assist in explaining the focus on NJ Solar RECs this week. We will, however, be watching the markets closely through year end to see if these trends continue to develop.
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